London trial homes in on Euribor manipulation

What do the defendants stand accused of?

In a nutshell, the defendants are believed to have manipulated an important interbank lending rate for the eurozone area, called the Euribor. They are accused of having altered the rate in their favor to match traders' positions with a view to securing instant profits.

Who's in the crosshairs?

The most prominent figure (still in detention) in the trial at London's Southwark Crown Court starting April 9 is Christian Bittar, a Frenchman who worked for Deutsche Bank's London and Singapore offices until 2011.

He worked as a senior trader in interest rate-based derivatives. Bittar was considered to be a star at Deutsche and was said to "have a remarkable relationship" with the lender's former co-CEO, Anshu Jain, who played no small role in enabling Bittar to receive €80 million ($98 million) in bonuses for his successful trades.

Bittar had pleaded guilty to conspiring to manipulate the Euribor. His plea had been subject to reporting restriction, which were only lifted a couple of weeks ago.

In the dock is one of Bittar's former co-traders at Deutsche Bank as well as four other former traders from Barclays — they all stand accused of conspiracy to defraud.

Why are there fewer people in the dock than originally planned?

Britain's Serious Fraud Office (SFO) originally planned to charge a total of 11 traders from Deutsche Bank, Barclays and Societe Generale. However, five of them did not show up at a 2016 London court hearing to be formally charged, and neither Germany nor France has agreed to extradite them, citing limitation period reasons.

What exactly is the Euribor?

Several interbank lending rates are used around the world, the best-know being the Libor, or London Interbank Offered Rate. Its equivalent in the eurozone is the Euribor, or Euro Interbank Offered Rate.

Combined, the major rates are a central cog in the global financial system and a benchmark for interest rates on an estimated $450 trillion of financial contracts ranging from derivatives to simpler student loans.

The Euribor rate was created in 1999 and has since reflected the average rate of interest at which a large number of European banks offer to lend each other short-term funds — with a view to eventually lending money to private households or companies.

It's important to know that the Euribor is calculated based on the daily interest rates offered by a large group of selected credit institutions. These are picked by the European Banking Federation based on their current market valuation.

How did the traders manipulate the rate?

The defendants at the London trial are accused of frequently having asked employees at their banks (who submitted the daily Euribor rate offers) to provide figures that would benefit the traders' current positions, instead of submitting rates the banks in question would have paid to borrow money. This would be a clear case of manipulation and conspiracy to defraud.

It's understood that sometimes that kind of manipulation reached a new stage when some traders coordinated with other lenders to alter the rates artificially. In effect, the Euribor was sent upward or downward solely based on traders' positions to pocket huge profits.

Only individual traders to blame?

Of course not. US regulators launched a global investigation into benchmark rigging (including Euribor and Libor) back in 2008. Since then, financial institutions have paid some $9 billion in fines to settle allegations of rate manipulation.

Deutsche Bank for instance was fined $2.5 billion by US and British authorities in 2015 as part of that probe.